UWO Foundation files to force public support for flawed real estate deals

The University of Wisconsin-Oshkosh Foundation bought Chancellor Richard Wells' home for roughly $120,000 more than it arguably was worth before he retired — the same foundation he's accused of illegally using to help cement his legacy.
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The University of Wisconsin-Oshkosh Alumni Welcome and Conference Center during construction in 2013.(Photo: File/USA TODAY NETWORK-Wisconsin)Buy Photo

OSHKOSH – The bankrupt University of Wisconsin-Oshkosh Foundation is asking a judge to force the UW System to help cover its debt from what the state calls improperly funded real estate deals.

In a complaint filed Tuesday in federal bankruptcy court, the UW-Oshkosh Foundation argues that a series of loan guarantees signed by former UWO Chancellor Richard Wells and former Vice Chancellor Tom Sonnleitner commit the system to back the foundation's debt on a string of showpiece building projects, including the Alumni Welcome and Conference Center.

The foundation filed for bankruptcy in August after becoming buried in debt on the center and four other building projects. The case could cost taxpayers millions if a judge agrees that Wells' so-called "comfort letters" commit the system to that debt.

Richard Wells(Photo: Courtesy UW-Oshkosh)

The UW System sued Wells and Sonnleitner in January over these agreements and for illegally funneling some $11 million in public money to the private foundation. Cash is supposed to flow from foundations to universities, not the other way around.

In its complaint, the foundation argues it would never have embarked on the building projects without the system's backing, and banks wouldn't have lent money for them.

The UW System has not yet filed a response to the claims.

The system said in June it would not commit any public money to bail out the foundation, after state Sen. Steve Nass, R-Whitewater, threatened that a bailout could jeopardize the system's biennial budget, passed on Sept. 21.

"(Bankruptcy) is understandably frustrating for the foundation, but we must act in a financially responsible manner on behalf of the UW System and our taxpayers,” Board of Regents Audit Committee Chairman Michael M. Grebe said in a statement after the bankruptcy filing.

Now, the foundation is trying force the UW System's support, said Tim Mulloy, chairman of the foundation board. Ultimately, a judge will need to decide if the comfort letters will commit the system to the foundation's debts or not.

"That's going to be a big decision for the courts," Mulloy said. "If there were to be a change of heart, that would change things."

In its bankruptcy filing, the foundation says it owes $15.8 million and has just $14.8 million in assets — mostly in property.

The five campus projects at issue in the case are a biodigester on Witzel Avenue in Oshkosh and another in Rosendale, a sports complex, hotel renovation and the welcome center, which is racking up $464 in interest every day, according to court documents.

Short-term extension for endowment

Meanwhile, some of the charity's dollars will keep flowing to campus projects — for now.

In a hearing Tuesday, the parties agreed to allow the foundation to use $500,000 in endowment funds to keep programs like scholarships and athletic department projects running until the end of the year.

Jamie Ceman(Photo: Doug Sundin/UW Oshkosh)

It's still unclear how that money will be spent, said Jamie Ceman, the university's chief communications officer.

"The disbursement of the $500,000 is completely at the discretion of the UW-Oshkosh Foundation," Ceman said. "At this point, we do not know which programs will receive funds. We anticipate having more information in the next several weeks."

It's a temporary agreement that also means "business as usual" for buildings tied up in the lawsuit, Mulloy said. The foundation is confident that legal precedent will keep that money off-limits from creditors, he said.

The creditors, however, are asking to be allowed to use the foundation's $27 million to pay off its debt, according to court filings.

Campus programs with money in foundation accounts worry that a judge's ruling against the foundation could put their funds at risk, said Vince Filak, who advises UWO's student newspaper, The Advance-Titan.

Vincent Filak(Photo: Courtesy Vincent Filak)

The student group started to raise money after a budget scare a year ago and has put about $25,000 in a foundation account.

Filak said he has heard little from the foundation about how the bankruptcy case could affect the group's funds and was unaware, when a USA TODAY NETWORK-Wisconsin reporter contacted him Thursday, that Tuesday's agreement could free up some foundation money.